Complete Question:
December 31
Assets 2015 2014
Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200
Accounts receivable 2,000 1,800
Inventories 2,900 2,800
Total current assets $ 8,200 $ 6,800
Gross fixed assets $29,500 $28,100
Less: Accumulated depreciation 14,700 13,100
Net fixed assets $14,800 $15,000
Total assets $23,000 $21,800
Liabilities and stockholders’ equity
Accounts payable $ 1,600 $ 1,500
Notes payable 2,800 2,200
Accruals 200 300
Total current liabilities $ 4,600 $ 4,000
Long-term debt 5,000 5,000
Total liabilities $ 9,600 $ 9,000
Common stock $10,000 $10,000
Retained earnings 3,400 2,800
Total stockholders’ equity $13,400 $12,800
Total liabilities and stockholders’ equity $23,000 $21,800
Keith Corporation Balance Sheets
ISBN 1Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700
Interest expense 367
Net profits after taxes 1,400
Tax rate 40%
Answer and Explanation:
A. net operating profit after taxes = NOPAT = EBIT x (1-Tax) = $2,700 x (1-40%) = $1,620
B. operating cash flow = OCF = NOPAT + Depreciation = $1,620 + 1,600 = $3,220
C. free cash flow = FCF = OCF - Net fixed asset investment - Net current asset investment
FCF = $3,220 - (29,500 - 28,100) - (8,200 - 6,800) - ($1,600 + 200 - 1,500 - 300) = $420
